PROBLEM SET NO.

2
ES 321

1. A certain fluidized-bed combustion vessel has an investment cost

of $100,00, a life of 10 years and negligible market (resale)
value. Annual cost of materials, maintenance, and electric power
for the vessel are expected to total to $8,000.00. A major relining
of combustion vessel will occur during the fifth year at a cost of
$20,000; during this year, the vessel will not be in service. If the
interest rate is 15% per year, what is the lump sum equivalent
cost of this project at the present time?

A  annual cost = $8,000

i  interest rate per year = 15%
n  10 years
IC  initial investment cost = $100,000
A5  $20,000

Present worth  IC 
A
i
 
1  ( 1  i )10  ( A5  A )( 1  i )5

Present worth
$8 ,000
 $100 ,000 
0.15
 
1  ( 1  0.15 )10  ($20 ,000  $8 ,000 )( 1  0.15 )5

Present worth  $146 ,116 .27